Testimony of POGO's Scott Amey before the Congressional Oversight Hearing on Treasury’s Use of Emergency Contracting Authority

Testimony of POGO's Scott Amey, General Counsel before the Congressional Oversight Panel Hearing on Treasury’s Use of Emergency Contracting Authority

Thank you for inviting me to testify today before the Congressional Oversight Panel. I am the General Counsel of the Project On Government Oversight, also known as POGO.1 POGO was founded in 1981 by Pentagon whistleblowers who were concerned about weapons that did not work and wasteful spending. Throughout its twenty-nine-year history, POGO has worked to remedy waste, fraud, and abuse in government spending in order to achieve a more effective, accountable, open, and ethical federal government. POGO has a keen interest in government contracting matters, and I am pleased to share POGO’s thoughts about federal contracting policies.

Despite many reforms to make contracting easier, the reality of the situation is that contracting has become very complex over the past fifteen years. Contract spending has grown tremendously, approaching $540 billion in fiscal year 2009,2 oversight has decreased, the acquisition workforce has been stretched thin, contractors are now performing many jobs that should be performed by public servants, and spending on services now outpaces spending on goods. The dramatic increase in federal contract spending often means agencies spend money quickly—sometimes without the same vigor and oversight as in the past. In addition to the half trillion dollars spent on contracts, agencies and their stretched staffs are now awarding hundreds of billions more in contracts and grants through the bailout and stimulus programs,3 which is a recipe for waste, fraud, and abuse.

On a positive note, interest in improving oversight of the federal contracting system has grown in recent years. The White House, agencies, and Congress have all stepped up efforts to ensure that federal contract dollars are being spent wisely, including placing restrictions on risky contract types, eliminating wasteful spending, and promoting contracts awarded with full and open competition.4 There have also been efforts to increase the size of the acquisition workforce, diminish conflicts of interest,5 and clarify work that must be performed by government employees.6

Numerous Government Accountability Office (GAO) and Inspector General (IG) reports highlight contracting deficiencies and recommend ways to correct them. These reports have found that contract planning, requirements definitions, contract vehicles, administration, and oversight are deficient. These are the leading reasons management of federal contracts at several agencies remains on GAO’s “high risk” list.7

When discussing federal contracting, there are always two questions that need to be asked and answered:

1. What are we buying? and

2. How are we buying it?

The first question requires a comprehensive look at the government’s overall acquisition planning structure and how best to place agencies in a position to meet their missions. Simply stated, what goods and services are required? The “how are we buying it” question places us more in the contracting weeds. The answer to that question often involves a discussion about types of contracts, level of competition, accountability, oversight, and transparency.

This Panel was created by the Emergency Economic Stabilization Act of 2008 (EESA) and vested with broad oversight jurisdiction over the Troubled Asset Relief Program (TARP). Today’s hearing looks at Treasury’s use of the authority provided in section 101(c) of EESA to contract for services and designate private firms to act as financial agents of Treasury. Treasury is buying services from financial institutions, law firms, accounting firms, consulting firms, and other entities to support its response to the nation’s economic crisis through implementation of TARP programs.

According to its latest monthly congressional report, Treasury has entered into 108 transactions with contractors and others as of August 31, 2010, including:8

• 51 Contracts

• 21 Interagency Agreements (IAA)

• 15 Financial Agency Agreements (FAA)

• 13 Blanket Purchase Agreements (BPA)

• 8 Procurements for services such as IT support and office equipment

In so doing, Treasury has entered into cost reimbursement, fixed price, time and materials, and labor hour contracts to procure nearly $500 million worth of services. There were many concerns at the time the EESA legislation was proposed because it included Section 107, which permits the Treasury Secretary to waive Federal Acquisition Regulation (FAR) full and open competition requirements.

Treasury has issued guidance that promotes the use of competition and utilizes small businesses.9 Additionally, it has issued TARP conflict of interest regulations to mitigate or eliminate ethical concerns. Despite those policies and regulations, the TARP program has a way to go before POGO is assured that it’s working in the best interest of taxpayers. For example, Treasury as a whole spent about $4.8 billion in contracts in FY 2009, but only 22 percent of those funds were spent with full and open competition.10 Including all forms of restricted competition, Treasury only competed approximately 60 percent of all contract dollars awarded.11 The majority of TARP contracts have also been a mixed bag, with numerous contracts awarded on a sole source basis or with less than full and open competition.12 Treasury must do more to ensure that full and open competition involving multiple bidders is the rule, not the exception.

One area that might require additional reforms is the implementation of the TARP conflict of interest rule that went into effect in January 2009. The rule established policies, procedures and remedies governing organizational conflicts of interest, personal conflicts of interest, gift bans, and safeguarding proprietary information. The rule was criticized for being cumbersome, ambiguous, inconsistent with the FAR, and requiring clarification.13 POGO agrees that the rule needs some clarification and improvements. The overreliance on retained entities to report organizational and personal conflicts is problematic given the strong potential for conflicts to arise. Additionally, the mitigation efforts and information barriers require constant agency monitoring and review.

Treasury has been open with its TARP polices, procedures, and contracts. Some questions have been raised about the redacted contract pricing information,14 and although POGO doesn’t agree that all cost or pricing data should be protected by the government, protecting proprietary information is the general rule. However, Treasury has also used General Service Administration (GSA) Federal Supply Schedules (FSS), and that information should be made available to the public without redactions. GSA FSS prices are publicly available and therefore Treasury should not withhold them.15

One trend that POGO would like to see continued is Treasury’s effort to convert risky contract types. For example, the agency entered into a number of time and materials contracts, but has made progress in converting them to fixed price contracts when requirements were established and fixed prices could be determined.16 Those conversions bode well for Treasury and for taxpayers.

Big Picture Contracting Concerns

Many contracting experts and government officials blame the inadequate size and training of the acquisition workforce for today’s problems in the contracting system. POGO agrees that past workforce reductions created a problem in government contracting, but we believe additional problems deserve equal attention. These problems are:

Inadequate Competition

Deficient Accountability

Lack of Transparency

Risky Contracting Vehicles

Inadequate Competition

To better evaluate goods and services, and to get the best value for taxpayers, the government must encourage genuine competition. At first glance, it may seem that federal agencies frequently award contracts competitively, but the definition of “competitive” includes limited competition and one-bid offers. Consequently, to accurately track or evaluate competition, the definition of “competitive bidding” should be revised to apply only to contracts on which more than one bid was received.

In addition to redefining competition, federal agencies must:

Reverse the philosophy of quantity over quality. Acquisition is now about speed, making competition a burden; this is a recipe for waste, fraud, and abuse.

Debundle contract requirements in order to invite more contractors to the table. Contracts that lump together multiple goods and services exclude smaller businesses that could successfully provide one good or service, but are incapable of managing massive multi-part contracts. Breaking apart multi-supply or -service contracts reduces the multiple layers of subcontracting which can drive up costs while adding little value.

Ensure that waivers of competition requirements for task and delivery orders issued under multiple-award contracts or the federal supply schedule program are granted infrequently.

Increase emphasis on sealed bidding to receive the lowest prices.

Use reverse auctions more frequently. In a Department of Energy reverse auction for pagers, two companies submitted initial bids for $43 and $51 per pager. At the close of bidding, the government awarded the contract at the price of $38 per pager.17

Why is competition in contracting important? In a nutshell, genuine competition between contractors means the government gets the best quality goods and services at the best price. Competition also prevents waste, fraud, and abuse because contractors know they must perform at a high level or risk being replaced.

Deficient Accountability

Through the years, the government has placed a premium on speeding up the contracting process and cutting red tape. Those policies led to downsizing the acquisition workforce and gutting the oversight community. When considering the large-scale increase in procurement spending during the past decade, the contracting and oversight communities lack sufficient resources to watch the money as it goes out the door.

Many acquisition reforms also eliminated essential taxpayer protections. For example, one “reform”—commercial item contracting—resulted in federal contracting officials lacking the cost or pricing data necessary to ensure that the government is getting the best value. Commercial item contracts, which prevent government negotiators and auditors from examining a contractor’s cost or pricing data, might make sense when buying computers, office supplies, or landscaping services, but have been exploited in some cases, such as complex services and goods that are not readily available in the commercial market.

POGO believes that Congress should:

Appropriate money to agencies to end their reliance on the industrial funding fees collected from other agencies for orders placed on interagency contracts. This system creates a perverse incentive to keep costs or prices high. In other words, agencies might not be seeking the best prices because program revenue would be lost.

Require contractors to provide cost or pricing data to the government for all contracts, except those where the actual goods or services being provided are sold in substantial quantities in the commercial marketplace.

Pass the Contracting and Tax Accountability Act of 2009 (H.R. 572) prohibiting federal contracts from being awarded to contractors that have an outstanding tax liability.22

Hold agencies and contractors accountable when small business contracts are diverted to large corporations and when set-aside dollars don’t reach their legally intended targets.23

Through the years, measures to ensure government and contractor accountability have been viewed as burdensome and unnecessary. This attitude needs to be replaced with one recognizing that accountability measures are essential to protecting taxpayers, and should be seen as an acceptable cost of doing business with the federal government.

Lack of Transparency

To regain public faith in the contracting system, the government must provide the public with open access to information on the contracting process, including contractor data and contracting officers’ decisions and justifications.

The following actions should be taken to provide the public with contracting information:

USAspending.gov should become the one-stop shop for government officials and the public for all spending information. This includes actual copies of each contract, delivery or task order, modification, amendment, other transaction agreement, grant, and lease. Additionally, proposals, solicitations, award decisions and justifications (including all documents related to contracts awarded with less than full and open competition and single-bid contract awards), audits, performance and responsibility data, and other related government reports should be incorporated into USAspending.gov.

To better track the blended federal government workforce, Congress should require the government to account for the number of contractor employees working for the government using a process similar to FAIR Act inventories of government employees filed by federal agencies.

Risky Contracting Vehicles

POGO is concerned with the government’s acceptance of limited competition in contracting as well as its over-reliance on cost-reimbursement, time and material contracts, and commercial item contracts. POGO realizes that there are benefits to these vehicles in certain circumstances, but we are not alone in voicing concerns about how these contract vehicles are used in practice.

POGO believes that risky contracts can work in practice, but only if additional oversight protections are added, including:

For commercial item contracts, goods or services should be considered to be “commercial” only if there are substantial sales of the actual goods or services (not some sort of close “analog”) to the general public. Otherwise, the goods or services should not be eligible for this favored contracting treatment.

The Truth in Negotiations Act (TINA) should be substantially revised to restore it to the common-sense requirements that were in place prior to the “acquisition reform” era. Specifically, all contract awards over $500,000, except those where the goods or services are sold in substantial quantities to the general public in the commercial marketplace, should be subject to TINA. This small step would result in enormous improvements in contract pricing, negotiation, and accountability, and save taxpayers billions of dollars per year.

All contracting opportunities in excess of $100,000—including task or delivery orders, and regardless of whether the action is subject to full and open competition, award against a GSA Federal Supply Schedule or an agency Government Wide Acquisition Contract, or any other type of contracting vehicle—should be required to be publicly announced for a reasonable period prior to award, unless public exigency or national security considerations dictate otherwise.

All contracting actions, including task and delivery orders, should be subject to the bid protest process at the GAO. While POGO recognizes that many will decry this recommendation as adding “red tape” to the process, we believe it is the only meaningful way to ensure that contractors are placed on an even playing field, and that the public can be confident in agency contract award decisions.

Thank you for inviting me to testify today. This hearing is vital to ensuring that the TARP program is working in the best interest of the government and taxpayers given the size and scope of the program and the contracting support work involved. POGO looks forward to working with the Panel to further explore how the government should improve the contracting system to better protect taxpayers, and I welcome any questions.

Scott Amey, General Counsel

Mr. Amey rejoined the POGO staff in 2003 and directs POGO’s Contract Oversight investigations, including reviews of federal spending on goods and services, the responsibility of top federal contractors, and conflicts-of-interest and ethics concerns that have led to questionable contract awards. Mr. Amey has testified before Congress and federal agency panels, submitted public comments on proposed regulations, educated the public by working with the media, and authored reports, alerts, and blogs on contracting issues. Mr. Amey previously worked at POGO in the mid-1990s as a Research Associate, and was one of the organization’s most prolific investigators. One of his most notable projects during that time was an investigation into Area 51 that resulted in the Air Force admitting the black facility’s existence and submitting to compliance with environmental laws. Mr. Amey also undertook investigations into Boston’s Big Dig project and safety concerns at nuclear power plants. Mr. Amey left POGO in 1998 to attend law school, after which he clerked for the Honorable James A. Kenney, III, at the Court of Special Appeals of Maryland from 2001-2003. Mr. Amey received a J.D., magna cum laude, from the University of Baltimore School of Law in 2001, and a B.A. from the University of Pittsburgh in 1993. Mr. Amey is licensed to practice law in Maryland.

11. The “competitive” label includes contracts awarded through less than full and open competition, including competitions within a selected pool of contractors, offers on which only a single bid was received, or a follow-on contract to a previously competed action.

Founded in 1981, the Project On Government Oversight is a nonpartisan independent watchdog that champions good government reforms. POGO’s investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.